<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-13716
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NORTH PITTSBURGH SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1485389
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4008 Gibsonia Road, Gibsonia, Pennsylvania 15044-9311
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
724 443-9600
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(Registrant's telephone number, including area code)
No Change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding
------------------------
At April 24, 1998, the Registrant had 15,005,000 shares of common stock
outstanding, par value $.15625 per share, the only class of such stock issued.
<PAGE>
PART I
ITEM 1
FINANCIAL STATEMENTS
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands - Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
---------------------
1998 1997
------- -------
<S> <C> <C>
Operating revenues:
Local network services $ 2,825 $ 2,340
Long distance and access services 10,996 10,873
Directory advertising, billing & other services 621 586
Telecommunication equipment sales 560 607
Other operating revenues 1,094 2,181
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Total Operating Revenues 16,096 16,587
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Operating expenses:
Network and other operating expenses 6,216 7,018
Depreciation and amortization 2,898 2,603
State and local taxes 754 779
Telecommunication equipment expenses 537 550
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Total Operating Expenses 10,405 10,950
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Net Operating Revenues 5,691 5,637
Other expense (income), net:
Interest expense 462 420
Interest income (382) (150)
Sundry expense (income), net (904) 10
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(824) 280
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Earnings before income taxes 6,515 5,357
Income Taxes 2,264 2,162
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Net earnings $ 4,251 $ 3,195
======= =======
Weighted average common shares outstanding 15,005 15,040
======= =======
Earnings per share of common stock $ .28 $ .21
======= =======
Dividends per share of common stock $ .15 $ .14
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS Mar. 31 Dec. 31
------ 1998 1997
-------- --------
<S> <C> <C>
Current Assets:
Cash and temporary investments $ 33,428 $ 15,938
Marketable securities available for sale - 16,847
Accounts receivable:
Customers 2,979 3,401
Access service settlements and other 6,167 5,995
Prepaid Expenses - 25
Inventories of construction and operating materials and
supplies 3,455 3,360
Prepaid taxes 755 -
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Total current assets 46,784 45,566
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Property, plant and equipment
Land 475 475
Buildings 10,543 10,543
Equipment 124,017 122,492
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135,035 133,510
Less accumulated depreciation and amortization 71,432 69,303
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63,603 64,207
Construction in progress 7,652 6,990
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Total property, plant and equipment, net 71,255 71,197
Investments 7,733 7,499
Deferred financing costs 930 954
Prepaid pension cost 1,098 580
Other assets 1,190 2,037
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$128,990 $127,833
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 816 $ 803
Accounts payable 5,545 4,794
Accrued legal settlement - 3,180
Dividend payable 3,001 2,101
Deferred income taxes - 5,289
Other accrued liabilities 2,280 2,304
Federal and state income taxes 7,454 389
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Total current liabilities 19,096 18,860
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Long-term debt 26,830 27,037
Deferred income taxes 6,560 6,560
Postretirement benefits 4,826 4,764
Other liabilities 1,871 2,052
Shareholders' equity:
Capital stock/Common stock 2,350 2,350
Capital in excess of par value 2,215 2,215
Retained earnings 65,750 64,501
Unrealized gain (loss) on available for sale securities, net - 2
Less cost of treasury stock (1998 and 1997-35,000 shares) (508) (508)
-------- ---------
Total shareholders' equity 69,807 68,560
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$128,990 $127,833
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
---------------------
1998 1997
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<S> <C> <C>
Cash from operating activities:
Net earnings $ 4,251 $ 3,195
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation and amortization 2,898 2,603
Gain on sale of marketable securities (1) (12)
Equity (income) losses of affiliated companies (234) -
Provision for postretirement benefits other than pensions 62 65
Changes in assets and liabilities:
Accounts receivable 250 (1,589)
Inventories of construction and operating materials &
supplies (95) (238)
Prepaid federal and state taxes (755) (702)
Accounts payable 751 821
Other accrued liabilities (205) (284)
Federal and state income taxes 1,776 1,491
Deferred financing costs, prepaid pension costs
and other assets 353 (329)
Other, net 41 154
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Total adjustments 4,841 1,980
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Net cash from operating activities 9,092 5,175
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Cash used for investing activities:
Expenditures for property and equipment (3,136) (3,702)
Net salvage on retirements 164 2
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Net capital additions (2,972) (3,700)
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Proceeds from redemption of marketable securites held to maturity - 100
Purchase of marketable securities available for sale - (55)
Proceeds from sale of marketable securities available for sale 105 149
Proceeds from sale of investment 13,561 -
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Net cash used for investing activities 10,694 (3,506)
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Cash used for financing activities:
Cash dividends (2,102) (1,955)
Retirement of debt (194) (189)
Payment on capital lease obligations - (74)
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Net cash used for financing activities (2,296) (2,218)
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Net (decrease) increase in cash and temporary investments 17,490 (549)
Cash and temporary investments at beginning of period 15,938 11,313
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Cash and temporary investments at end of period $33,428 $10,764
======= =======
Interest paid $ 439 $ 395
======= =======
Income taxes paid $ 489 $ 667
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
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The condensed consolidated financial statements included herein have
been prepared by the Registrant, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission.
Consolidated herein are the financial results of the Registrant's
wholly-owned subsidiaries, North Pittsburgh Telephone Company (North
Pittsburgh), Penn Telecom, Inc. and Pinnatech, Inc. (Pinnatech). Also
consolidated is the financial activity of Management Consulting
Solutions, Inc. (MCSI) until its sale on July 31, 1997. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Nevertheless, the Registrant believes that its
disclosures herein are adequate to make the information presented not
misleading and, in the opinion of management, all adjustments (which
consisted only of normal recurring accruals) necessary to present
fairly the results of operations for the interim periods have been
reflected. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial
statements and the notes thereto included in the Registrant's latest
annual report to the Securities and Exchange Commission on Form 10-K.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. Financial Condition
-------------------
(a) General
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There were no material changes in the Registrant's consolidated
general financial condition from the end of its preceding fiscal
year on December 31, 1997 to March 31, 1998, the end of the
three-month period reported herein.
(b) Liquidity and Capital Resources
-------------------------------
Consolidated capital expenditure commitments for the purchase and
installation of communications and other equipment at March 31,
1998 amounted to approximately $2,665,000 with such amount being
part of the 1998 Construction Program of $23 million to $26
million. Funds for financing construction expenditures in the
three-month period ended March 31, 1998 were generated from
internal sources. Based on its 1998 construction budget and
projected cash flows, the Registrant anticipates cash flows
provided by operating activities and cash reserves in 1998 to
service long-term debt, to pay dividends and to finance
approximately 50% of capital
4
<PAGE>
additions. The balance of capital additions will be financed from
new debt financing available from the Rural Utilities Service. At
March 31, 1998, construction work in progress was $7,642,000. An
additional $8,861,000 is expected to be expended to complete these
projects.
In January 1998, the Registrant delivered shares of SmarTalk
Teleservices, Inc. ("SmarTalk"), as well as cash, for transfer to
another shareholder of Conquest Telecommunications Services Corp.
("Conquest") in accordance with an agreement reached in 1997 to
settle certain claims. In January 1998, the Registrant also sold
its remaining shares of SmarTalk to Waterton Investment Group II,
L.L.C. ("Waterton") for $14,311,000 in cash pursuant to an option
agreement entered into by the Registrant and Waterton in December
1997.
The Registrant and its subsidiaries have not experienced any
difficulty in the past meeting either long-term or short-term cash
commitments. Cash flow generated through regular operations has
been adequate to not only finance a significant portion of the
capital requirements of the Registrant as discussed above but also
to meet principal and interest payments on long-term debt and all
working capital requirements. It is anticipated that future long-
term interest and principal payments will be made from the same
source of internally generated funds.
(c) Regulatory/Competition
----------------------
North Pittsburgh, under Chapter 30 of the Pennsylvania Public
Utility Code, must, prior to July 8, 1998, file a petition with
the Pennsylvania Public Utility Commission ("PA PUC") for approval
of an alternative form of regulation to replace traditional rate
base/rate of return regulation or be subject to a show cause
proceeding. The petition must include a proposed network
modernization plan. Although North Pittsburgh has not determined
the form and content of its petition, the ultimate filing of such
petition is expected to be of significance to North Pittsburgh.
However, it is not possible at this time to determine the PA PUC's
disposition of any petition filed or the effect on North
Pittsburgh's financial position or results of operations.
The Federal Communications Commission ("FCC") continues to work on
Rulemakings that will spell out the specifics of the
Telecommunications Act of 1996 ("the 1996 Act") and the PA PUC
must then finalize its course of action to fully implement the
1996 Act, or to the extent possible and permissible, change the
manner in which such regulations are implemented in Pennsylvania
before the impact on North Pittsburgh, a Rural Telephone Company
under the 1996 Act, can be fully understood and measured. However,
the clear intent of the 1996 Act is to open up the local exchange
market to competition. This appears to mandate, among other items,
that North Pittsburgh, at some point in time, permit the resale of
its services at wholesale rates, provide number portability, if
feasible, provide dialing parity, provide interconnection to any
requesting carrier for the transmission and routing of telephone
exchange service and exchange access and provide access to network
elements. The Company joined with 17 other rural companies in
Pennsylvania to file a Petition with the PA PUC requesting a
temporary suspension of the interconnection requirements of
Section 251 of the 1996 Act for a two-year period following
resolution of the FCC's Universal Service and Access Reform
Orders. The Petition was filed February 20, 1997 and the PA PUC
approved the petition on July 10, 1997.
The 1996 Act, FCC and PA PUC regulatory proceedings and the thrust
towards a fully competitive marketplace have created some
uncertainty in respect to the levels of North Pittsburgh's revenue
growth in the future. However, its unique location in a growing
commercial/residential suburban traffic corridor to the north of
the City of Pittsburgh, its state-of-the-art switching
transmission and transport facilities and its extensive fiber
network place North Pittsburgh in a solid position to meet
competition and minimize any loss of revenues. In addition, North
Pittsburgh continues to make its network flexible and responsive
to the needs of its customers to meet competitive threats. New
services, access line growth and anticipated usage growth is
expected to lessen or offset any reductions in North Pittsburgh's
revenue sources.
5
<PAGE>
2. Results of Operations
---------------------
Total operating revenues decreased $491,000 (3.0%) in the three-
month period ended March 31, 1998 over the comparable period in
1997. This change was due to an increase in local network
services of $485,000 (20.7%), offset by a decrease in other
operating revenues of $1,087,000 (49.8%). Increased local network
service revenues were attributable to customer growth, growth in
second lines and expanded penetration of enhanced services. The
decrease in other operating revenues is primarily due to the
cessation of operations and subsequent sale of MCSI on July 31,
1997. Long distance and access services increased only moderately
for the quarter due to the implementation of a toll savings plan
in July 1997, and rate decreases on interstate switched access
revenues beginning January 1, 1998. The introduction of the toll
savings plan was a proactive step by the Registrant to retain
present customers and thus preserve market share in the newly
competitive intraLATA long distance market.
Total operating expenses for the three-month period ended March
31, 1998, decreased $545,000 (5.0%) over the preceding year. That
change is principally the result of a decrease in network and
other operating expenses of $802,000 (11.4%), offset by an
increase in depreciation and amortization of $295,000 (11.3%). The
net decrease of $802,000 in network and other operating expenses
consists of a decrease of $1,560,000 resulting from the sale of
MCSI, offset by an increase of $500,000 primarily due to the
introduction of a data processing transition plan, increased
marketing efforts, and on-going increases in maintenance, customer
service and other administrative expenses. The increase in
depreciation and amortization is the direct result of the growth
in fixed assets to serve current and future customer needs. The
decrease in total operating revenues discussed above coupled with
the decrease in total operating expenses resulted in net operating
revenues increasing modestly between 1998 and 1997.
Interest income increased $232,000 primarily due to increased
levels of investment in temporary instruments. The net increase
in Sundry income (non-operating) of $914,000 is primarily due to
an increase in cellular partnership income in 1998 as compared to
1997 and receipts from a one-time insurance settlement.
The increase in net operating revenues for the three-month period
ended March 31,1998, in conjunction with the increase in Sundry
income, net, resulted in an increase of $1,158,000 (21.6%) in
earnings before income taxes.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
1. This item is not applicable.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH PITTSBURGH SYSTEMS, INC.
------------------------------
(Registrant)
Date April 27, 1998 /s/ A. P. Kimble
------------------ ----------------------------------------
A. P. Kimble, Vice President & Treasurer
Date April 27, 1998 /s/ N. W. Barthlow
------------------ ----------------------------------------
N. W. Barthlow, Vice President & Secretary
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits - Exhibit Index for Quarterly Reports on Form 10-Q.
--------
<TABLE>
<CAPTION>
Exhibit
Number Subject Applicability
- ------- ------- -------------
<S> <C> <C>
(2) Plan of acquisition, reorganization, Not Applicable
arrangement, liquidation or succession
(3) (i) Articles of Incorporation Provided in Quarterly Report
on Form 10-Q for the quarter
ended June 30, 1996 and
Incorporated Herein by
Reference.
(3) (ii) By-Laws Attached Hereto
(4) Instruments defining the rights of Provided in Registration of
security holders including indentures Securities of Certain
Successor Issuers on Form
8-B filed on June 25, 1985
and Incorporated Herein by
Reference.
(10) Material Contracts Not Applicable
(11) Statement re computation of per Attached Hereto
share earnings
(15) Letter re unaudited interim financial Not Applicable
information
(18) Letter re change in accounting Not Applicable
principles
(19) Report furnished to security holders Not Applicable
(22) Published report regarding matters Not Applicable
submitted to a vote of security holders
(23) Consents of experts and counsel Not Applicable
(24) Power of attorney Not Applicable
(27) Financial Data Schedule Attached Hereto
(99) Additional exhibits Not Applicable
</TABLE>
(b) Reports on Form 8-K - A Form 8-K was filed on January 28, 1998
-------------------
disclosing the sale of Conquest/SmarTalk stock and the death of
Gerald A. Gorman, a director and former officer.
<PAGE>
Exhibit 3
AS AMENDED FEBRUARY 27, 1998
BY-LAWS
OF
NORTH PITTSBURGH SYSTEMS, INC.
===============================================================================
ARTICLE I
GENERAL
Section 1. Principal Office. The principal office of the Corporation shall be
----------------
located at Gibsonia, Allegheny County, Pennsylvania.
Section 2. Branch Offices. The Corporation may establish and maintain such
--------------
other office or offices at such place or places as the Board of Directors may,
from time to time, deem necessary, desirable or expedient.
Section 3. Seal. The corporate seal of this Corporation shall have inscribed
----
thereon the name of the Corporation, the year of its incorporation and the State
where it was incorporated, and such seal may be used by any of the corporate
officers by causing an impression or facsimile thereof to be impressed or placed
upon the paper or document to be sealed.
Section 4. Fiscal Year. The fiscal year of the Corporation shall begin January
-----------
1 and end December 31.
Section 5. Waiver of Notice. Any notice required by these By-Laws to be given
----------------
directors or shareholders for any meeting may be waived by any director or
shareholder in writing, signed by such director or shareholder, or by his
attorney thereunto authorized, and filed with the Secretary of the Corporation.
Attendance of a person at any directors' meeting and attendance of a person
either in person or by proxy at any shareholders' meeting shall constitute a
waiver of such notice of meeting except where such person attends a meeting for
the express purpose of objecting to the transacting of any business because a
meeting was not lawfully called or convened.
Section 6. Dividends. Dividends may be declared and paid out of the net profits
---------
or surplus of the Corporation as often and at such times and to such extent as
the Board of Directors may determine, consistent with the provisions of the
Charter of the Corporation and the law of the Commonwealth.
Section 7. Audit. An annual examination and audit of the financial status,
-----
property and affairs of the Corporation shall be made by an audit committee or
an approved firm of accountants who shall be appointed by the Board. Such annual
examination and audit shall be undertaken and completed a sufficient time before
the annual meeting of the shareholders to permit the submission of an
appropriate report at such meeting.
Section 8. Checks and Notes. Checks, notes, drafts, acceptances, bills of
----------------
exchange, and other obligations for the payment of money, made, accepted or
endorsed, shall be signed by such officer or officers, or person or persons, as
the Board of Directors shall from time to time determine.
Section 9. Repeal of Prior By-Laws. Any and all By-Laws heretofore existing for
-----------------------
this Corporation are hereby repealed.
ARTICLE II
SHAREHOLDERS
Section 1. Place. All meetings of shareholders shall be held at the principal
-----
office of the Corporation or at such other place or places within Pennsylvania
as the directors may from time to time determine.
Section 2. Annual Meeting. There shall be an annual meeting of the shareholders
--------------
of the Corporation for the purpose of electing directors and transacting other
proper business,
1
<PAGE>
on the third Friday of May of each year at 2:00 o'clock p.m., unless such day be
a legal holiday, in which case, the meeting shall be held at the same hour on
the next day following that is not a legal holiday.
Section 3. Special Meetings. Special meetings of the shareholders may be called
----------------
by the Chairman of the Board, the President or the Board of Directors at any
time, and shall be called by the President upon the written request of three (3)
or more common shareholders. Such request must specify the purpose of the
proposed meeting and the business transacted thereat shall be confined to the
object or objects stated in the call.
Section 4. Notice. Written notice of every meeting of the shareholders stating
------
the purpose or purposes for which the meeting is called and the time and place
where it is to be held shall be served either personally or by mail upon each
shareholder of record entitled to vote at such meeting, not less than five (5)
days before the meeting, unless a longer period of notice is required by law. If
mailed, such notice shall be directed to each shareholder at his last known
address as shown on the records of the Corporation.
Section 5. Quorum. The holders of record of a majority of the stock issued and
------
outstanding and entitled to vote at any shareholders' meeting, present in person
or represented by proxy, shall constitute a quorum for transacting business,
unless otherwise provided by law.
Section 6. Adjournment. If a quorum shall not be present in person or by proxy,
-----------
the shareholders present in person or by proxy shall have the power to adjourn
the meeting from time to time without notice other than announced at the
meeting, until the requisite amount of stock shall be represented. At such
adjourned meeting at which the requisite amount of stock shall be represented,
any business may be transacted which might have been transacted at the meeting
as originally notified.
Section 7. Right to Vote. Except as otherwise provided by law, each common
-------------
shareholder of record shall be entitled, at every meeting of the Corporation, to
cast one vote for each share of common stock standing in the name of such common
shareholder on the books of the Corporation. Each preferred shareholder of
record shall be entitled at every meeting of the Corporation (at which such
preferred shareholder is entitled to vote by the Charter of the Corporation or
the law of the Commonwealth), to cast one (1) vote for each share of preferred
stock standing in the name of such preferred shareholder on the books of the
Corporation.
Section 8. Proxies. Votes may be cast at shareholders' meetings either in
-------
person or by written proxy, duly executed by the shareholder, and dated not more
than two (2) months prior to the meeting involved, which meeting shall be named
therein.
Section 9. Mode of Voting. All voting, unless required by law or by these By-
--------------
Laws to be by ballot, shall be viva voce, unless a stock vote shall be called
for, in which event the vote shall be by ballot, each ballot to state the name
of the shareholder voting, the number of shares owned by him, and in addition,
if such ballot be cast by proxy, the name of the proxy. Any qualified voter may
demand a stock vote and in such event a stock vote shall immediately be taken.
Section 10. Judges of Election. Prior to each meeting of the shareholders, the
------------------
Board of Directors shall appoint two (2) Judges of Election, or such number as
may be required by law, who shall perform the duties required by law at such
meeting and any adjournment thereof. If any Judge shall refuse to serve, or
neglect to attend at the election, or his office becomes vacant, the presiding
officer shall appoint a Judge in his place. Judges of Election shall be sworn.
Section 11. List of Shareholders. A complete list of the shareholders entitled
--------------------
to vote at any meeting shall be compiled by the Secretary of the Corporation at
least five (5) days before each meeting of shareholders and kept on file at the
Corporation's principal office, subject to the inspection of any proper party at
any time during the usual business hours and such list shall also be exhibited
at the meetings. Said list shall be arranged alphabetically giving the address
of each shareholder entitled to vote and the number of shares held by each.
2
<PAGE>
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The property, affairs and business of the
-------------------
Corporation shall be managed and controlled by a board of not less than seven
(7) nor more than nine (9) directors who may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, the
Charter of the Corporation, or its By-Laws, required to be exercised or to be
done by the shareholders.
The number of directors to be elected at the annual meeting, not less than seven
(7) nor more than nine (9), shall be determined by the Board of Directors prior
to the annual meeting at which such directors are to be elected. In the event
the Board of Directors determines that less than nine (9) directors shall be
elected at the annual meeting, it may at any time, by majority vote, until the
next annual meeting, increase the Board by electing one or two additional
directors to fill the vacancy or vacancies so created by such determination to
serve until the next annual meeting if it believes it to be in the best interest
of the Corporation to do so.
Section 2. Qualification and Term. A Director need not be a shareholder of the
----------------------
Corporation. The Directors shall be elected by ballot at the annual meeting of
the shareholders. After their election they shall continue in office until the
next annual meeting of shareholders and until their successors have been elected
and qualified.
Section 3. Vacancies. In the case of any vacancy in the Board of Directors, the
---------
remaining directors, by affirmative vote of a majority thereof, may elect a
successor to hold office for the unexpired portion of the term of the director
whose place shall be vacant and until the election and qualification of his
successor.
Section 4. Place of Meeting. Meetings of the Board of Directors shall be held
----------------
at the principal office of the Corporation or at such other place or places
within or without the Commonwealth of Pennsylvania as may from time to time be
fixed by resolution of the Board, or as may be specified in the call of any
meeting.
Section 5. Regular Meetings. Regular meetings of the Board of Directors shall
----------------
be held at such times as may be fixed by resolution of the Board, provided that
a regular meeting of the Board shall be held within thirty (30) days following
each annual meeting of the shareholders and that a regular meeting of the Board
shall be held at least once every two (2) months thereafter. No notice shall be
required for any regular meeting of the Board.
Section 6. Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time upon the call of the Chairman of the Board, the President or of
three (3) of the directors then in office, by oral, telegraphic or written
notice duly served on or sent or mailed to each director not less than twenty-
four hours (24) before such meeting.
Section 6a. Telephonic Special Meetings. Special telephonic meetings of the
---------------------------
Board of Directors may be held at any time upon the call of the Chairman of the
Board, the President or of three (3) Directors then in office, by oral or
facsimile written notice duly served on or sent to each Director, at a business
or residential address designated by such Director not less than two (2) hours
before such meeting.
Section 7. Quorum. A majority of the members of the Board of Directors then
------
holding office shall constitute a quorum for the transaction of business, but if
there shall be less than a quorum at any meeting of the Board, a majority of
those present (or if only one be present, then that one) may adjourn the meeting
from time to time and the meeting may be held as adjourned without further
notice.
Section 8. Election of Officers. The Board of Directors, at the first regular
--------------------
meeting held after the annual meeting of the shareholders of the Corporation,
shall elect a Chairman of the Board, (who shall be a director), a President, a
Vice President, a Secretary, a Treasurer, and such additional Vice Presidents,
Assistant Secretaries, Assistant Treasurers, and other officers, as it may deem
necessary or desirable. Except as otherwise provided by law, the duties of more
than one office may be discharged by one person. Any officers or agents elected
or appointed by the directors shall be removed at any time by the affirmative
vote of a majority of the whole Board of Directors.
3
<PAGE>
Section 9. Resignation of Whole Board. In case the entire Board of Directors
--------------------------
shall die or resign, any shareholder may call a special meeting in the same
manner as the Chairman of the Board or the President may call such a meeting and
directors for the unexpired terms may be elected at any such special meeting in
the same manner as that provided for their election at annual meetings.
Section 10. Interest in Contracts. No directors shall be disqualified from
---------------------
voting or acting on behalf of the Corporation in contracting with any other
company because of the fact that he may be an officer, director or shareholder
therein.
Section 11. Committees. The Board of Directors may, in its discretion, by
----------
resolution adopted by a majority of the whole Board, appoint committees which
shall have and may exercise such powers as shall be conferred or authorized by
the resolution appointing them. The Board shall have the power at any time to
change the members of any such committee, to fill vacancies thereon, and to
discharge any such committee.
Section 12. Expenses. Directors may be reimbursed for expenses incurred in
--------
attending any meeting of the Board of Directors or of any committee of the
Board. Nothing herein contained shall preclude any directors in serving in any
other capacity and receiving compensation therefore.
Section 13. Telephonic Meetings. Any meeting of the Board of Directors or of a
-------------------
committee thereof, including the Executive Committee, may be held in which any
one or more or all of the directors or participants may participate as if
present in person, by means of conference telephone or similar communication
equipment in a manner by which all persons participating in the meeting can hear
each other.
Section 14. Personal Liability of Directors. To the fullest extent that the
-------------------------------
laws of the Commonwealth of Pennsylvania, as now in effect or as hereafter
amended, permit elimination or limitation of the liability of directors, no
director of the Company shall be personally liable for monetary damages as such
for any action taken, or any failure to take any action, as a director. Further,
any amendment or repeal of Section 14 which has the effect of increasing
director liability shall operate prospectively only, and shall not affect any
action taken, or any failure to act, prior to its adoption.
ARTICLE IV
OFFICERS
Section 1. Election. The executive officers of the Corporation shall be a
--------
Chairman of the Board, a President, a Vice President, a Secretary, a Treasurer,
and such additional Vice Presidents, Assistant Secretaries, Assistant
Treasurers, and other officers as the Board of Directors may by resolution
determine. All of such officers shall be elected by the Board of Directors in
the manner set forth in Article III hereof and they shall be subject to removal
at any time by a majority vote of the whole Board. The officers of the
Corporation shall each have such powers and duties as are hereinafter set forth
and as generally pertain to their respective offices and in addition thereto,
such powers and duties as may from time to time be conferred upon them by the
Board of Directors.
Section 2. Chairman of the Board. The Chairman of the Board shall be the
---------------------
titular head of the Corporation, and shall preside at meetings of the
shareholders and of the Board of Directors. He shall advise and consult with the
other members of the Board, the President and the other officers concerning the
property, business and affairs of the Company, and he shall perform such other
duties and shall have supervision over such other matters as the Board may from
time to time prescribe. He shall be ex-officio a member of all Committees of the
Board of Directors.
Section 3. President. The President shall, in the absence of or at the
---------
direction of the Chairman of the Board, preside at all meetings of the
shareholders and the Board of Directors. He shall be ex-officio a member of all
Committees of the Board of Directors and he shall perform such other duties as
may be assigned to him from time to time by the Board of Directors. He may sign
and execute all contracts in the name of the Corporation and shall with the
Treasurer, sign all certificates of stock of the Corporation. He shall have
general control and direction of the business of the Corporation, and he shall
perform all acts and things incident to the position of President. He shall have
power to sign all notes, drafts, checks and orders for the payment of money in
the event of the temporary absence
4
<PAGE>
or inability of the Treasurer.
Section 4. Vice President. Any Vice President shall have such power and perform
--------------
such duties as the Board of Directors may from time to time prescribe and shall
also perform such duties as may be assigned to him from time to time by the
President. In the event of the death, absence, or inability of the President to
perform any duties imposed upon him by these By-Laws or by the Board of
Directors, a Vice President may exercise his powers and perform his duties,
subject to the control of the Board of Directors.
Section 5. Secretary. The Secretary shall attend the meetings of the
---------
shareholders and the Board of Directors and shall keep careful record of all
such meetings; the proceedings whereof shall be transcribed into the record book
over his signature. He shall give due notice of any and all meetings of the
shareholders and of the Board of Directors unless notice is directed by law or
by these By-Laws to be otherwise given. He shall be the custodian of the seal
and the stock book of the Corporation and shall keep a proper registry of all
outstanding certificates of stock. At all meetings of the shareholders, he shall
furnish the Judges with lists of the shareholders of the Corporation, as shown
by the books of the Corporation, which lists shall show the number of shares
owned by each shareholder. He shall safely keep all books, documents and papers
of the Corporation committed to his charge. The Secretary shall supervise and
control the manner in which the records and files of the Corporation shall be
kept and shall perform such other duties as may be assigned to him by the Board
of Directors. The Board of Directors shall have the authority to assign the duty
of attending and keeping minutes at any shareholders' meeting or at any board of
directors' meeting(s) to another person other than the Secretary, including an
officer or member of the Board of Directors, in those circumstances in which a
majority of the Board of Directors believes appropriate. Any minutes so recorded
and approved shall be transcribed in the Company's record book of minutes over
the signature of the person designated by the Board to take such minutes. Any
such minutes shall make reference to such appointment.
Section 6. Treasurer. The Treasurer shall have the care and custody of all the
---------
funds of the Corporation, which may come into his hands and to deposit the same
in the name of the Corporation in such bank or banks or depository, as the Board
may designate. He shall sign all drafts, notes and orders for the payment of
money, and he shall pay out and dispose of the same under the direction of the
Board. He shall, with the President, sign all certificates of stock. He shall
render a statement of his cash account to the Board of Directors as often as
they shall require the same. He shall enter regularly, in books to be kept by
him, for that purpose, a full and accurate account of all moneys received and
paid to him on account of the Corporation and shall perform all acts and things
incident to the position of Treasurer. The Treasurer, and other officers as the
Board of Directors may determine, shall be bonded in respect to the faithful
performance of their duties in such sums as the Board of Directors may agree
upon.
Section 7. Assistants. Any Assistant Secretary, Assistant Treasurer, or any
----------
other assistant officer elected by the Board of Directors, shall perform such
duties as the Secretary, the Treasurer, or any other officer elected by the
Board of Directors, as the case may be, or the Board of Directors, may from time
to time assign to him.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates. Certificates for shares of the capital stock of the
------------
Corporation shall be in such form not inconsistent with law as approved by the
Board of Directors, and shall state that the Corporation is incorporated under
the laws of Pennsylvania, the name of the person to whom issued, and the number
and class of shares and the designation of the series (if any) that the
certificate represents and such other terms and provisions as may be required by
statute or authorized by the Board of Directors. The share register or transfer
books and blank share certificates shall be kept by the Secretary or by any
transfer agent or registrar designated by the Board of Directors for that
purpose. The share certificates of the Corporation shall be numbered and
registered in the share register or transfer books of the Corporation as they
are issued. Unless otherwise directed by the Board of Directors, certificates
shall be signed by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, any of such
signatures may be a facsimile except at least one of such signatures shall be
5
<PAGE>
manual. Certificates shall bear the corporate seal, which may be embossed, a
facsimile, engraved or printed. Where any such certificate is signed by a
transfer agent or a registrar, the signature of any corporate officer upon such
certificate may be a facsimile, engraved or printed. In case any officer who has
signed, or whose facsimile signature has been placed upon, any share certificate
shall have ceased to be such officer because of death, resignation or otherwise,
before the certificate is issued, it may be issued with the same effect as if
the officer had not ceased to be such at the date of its issue. Every
shareholder of record shall be entitled to a single share certificate
representing the total number of shares of each class owned by him/her/it. If a
shareholder desires to have share certificates issued or reissued to him/her/it
in a manner inconsistent with the immediately preceding sentence, all costs of
issuance or reissuance shall be at the sole expense of the requesting
shareholder in accordance with a schedule of costs established by the President
or a Vice President and approved by the Board of Directors.
Section 2. Transfers. Transfers of shares shall only be made upon the books of
---------
the Corporation by the holder in person or by his legal representative or by
power of attorney duly executed and filed with the Corporation, and on the
surrender and cancellation of the certificate or certificates of such shares
properly assigned.
The Board of Directors shall have power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration of certificates of shares in the capital stock of the Corporation.
Section 3. Closing of Stock Transfer Books and Fixing of Record Date for
-------------------------------------------------------------
Determination of Shareholders. The Board of Directors of the Corporation may
- -----------------------------
close the Stock Transfer books of the Corporation for a period not exceeding
forty (40) days preceding the date of any meeting of shareholders, or the date
for the payment of any dividend, or the date for the allotment of any rights, or
the date when any exchange or conversion, or exchange of capital stock shall go
into effect, or may fix, in advance, a date not exceeding forty (40) days
preceding any of the aforesaid dates as a record date for the determination of
the shareholders entitled to vote at any such meeting, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to exercise
the rights in respect to any such exchange or conversion, or exchange of capital
stock. In case the Stock Transfer books are closed, as aforesaid, ten (10) days'
written notice thereof shall be mailed to the shareholders at their last known
address as the same appears on the books of the Corporation.
Section 4. Lost Certificates. No certificate of shares in the capital stock of
-----------------
the Corporation shall be issued in place of any certificate alleged to have been
lost, stolen or destroyed, except on delivery to the Corporation of a bond of
indemnity, with sufficient surety, against such lost, stolen or destroyed
certificate, to be approved by the Board of Directors. Proper and legal evidence
of such loss, theft or destruction shall be produced to the Board, if they
require the same. The Board of Directors may in their discretion refuse to issue
such new certificate, save upon the order of a court having jurisdiction in such
matters.
Section 5. Aggregate Number of Shares. The aggregate number of shares which the
--------------------------
Corporation shall have authority to issue is:
(a) The Corporation shall have the authority to issue a total of
50,000,000 shares of Capital Stock. Of the 50,000,000 shares of Capital
Stock, 40,000,000 shares shall be Common Stock, par value $.15625 per
share. The Board of Directors, at such time or times as it believes
appropriate, may divide the remaining 10,000,000 shares of Capital Stock
of the Corporation into one or more classes of shares of Common Stock,
the voting power per share of which shall not be greater than the voting
power per share of the Common Stock issued and outstanding on April 9,
1996 and/or one or more classes and series of Preferred Stock, with par
or stated value. The determination of the voting rights, preferences,
qualifications, privileges, limitations, restrictions, options,
conversion rights and other special or relative rights of the shares of
any such class or classes of stock shall be accomplished by an amendment
to this Article 5 solely by action of the Board of Directors, which
shall have the full authority permitted by law to make such divisions
and determinations.
6
<PAGE>
ARTICLE VI
AMENDMENTS TO BY-LAWS
These By-Laws may be amended, altered, modified or added to by the majority of
the members present and constituting a quorum at any regular or special meeting
of the Board of Directors. The authority of the Board of Directors to amend,
alter or modify the By-Laws is subject always to the authority of the
shareholders of the Corporation entitled to vote thereon to rescind or alter
such amendment or to amend, alter or modify the By-Laws by a majority vote of
all such stock represented in person or by proxy at an annual or special meeting
of the shareholders provided that written notice shall be mailed to each of said
shareholders at least five (5) days prior to said meeting.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Except as prohibited by law, every
------------------------
director and officer of the Company shall be entitled as of right to be
indemnified by the Company against reasonable expense and any liability paid or
incurred by such person in connection with any actual or threatened claim,
action, suit or proceeding, civil, criminal, administrative, investigative or
other, whether brought by or in the right of the Company or otherwise, in which
he or she may be involved, as a party or otherwise, by reason of such person
being or having been a director or officer of the Company or by reason of the
fact that such person is or was serving at the request of the Company as a
director, officer, employee, fiduciary or other representative of another
corporation, partnership, joint venture, trust, employee benefit plan or other
entity (such claim, action, suit or proceeding hereinafter being referred to as
"Action"). Such indemnification shall include the right to have expenses
incurred by such person in connection with an Action paid in advance by the
Company prior to final disposition of such Action, subject to such conditions as
may be prescribed by law. Persons who are not directors or officers of the
Company may be similarly indemnified in respect of service to the Company or to
another such entity at the request of the Company to the extent the Board of
Directors at any time designates such person as entitled to the benefits of this
Section. As used herein, "expense" shall include fees and expenses of counsel
selected by such person; and "liability" shall include amounts of judgments,
excise taxes, fines and penalties, and amounts paid in settlement.
Section 2. Right of Claimant to Bring Suit. If a claim for indemnification by
-------------------------------
any person eligible to be indemnified under Section 1 is not paid in full by the
Company within thirty (30) days after a written claim has been received by the
Company, the claimant may at any time thereafter bring suit against the Company
to recover the unpaid amount of the claim, and, if successful in whole or in
part, the claimant shall also be entitled to be paid the expense of prosecuting
such claim. It shall be a defense to any such suit that the conduct of the
claimant was such that under Pennsylvania law the company would be prohibited
from indemnifying the claimant for the amount claimed, but the burden of proving
such defense shall be on the Company. Neither the failure of the Company
(including its Board of Directors, independent legal counsel and its
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the claimant is proper in the circumstances because
the conduct of the claimant was not such that indemnification would be
prohibited by law, nor an actual determination by the Company (including its
Board of Directors, independent legal counsel or its shareholders) that the
conduct of the claimant was such that indemnification would be prohibited by
law, shall be a defense to the suit or create a presumption that the conduct of
the claimant was such that indemnification would be prohibited by law.
Section 3. Insurance and Funding. The Company may purchase and maintain
---------------------
insurance to protect itself and any person eligible to be indemnified hereunder
against any liability or expense asserted or incurred by such person in
connection with any Action, whether or not the Company would have the power to
indemnify such persons against such liability or expense by law or under the
provisions of this Article VII. The Company may create a trust fund, grant a
security interest, cause a letter of credit to be issued or use other means
(whether or not similar to the foregoing) to ensure the payment of such sums as
may become necessary to effect indemnification as provided herein.
Section 4. Non-Exclusivity; Nature and Extent of Rights. The right of
--------------------------------------------
indemnification
7
<PAGE>
provided for herein (l) shall not be deemed exclusive of any other rights,
whether now existing or hereafter created, to which those seeking
indemnification hereunder may be entitled under any agreement, by-law or charter
provision, vote of shareholders or directors or otherwise, (2) shall be deemed
to create contractual rights in favor of persons entitled to indemnification
hereunder, (3) shall continue as to persons who have ceased to have the status
pursuant to which they were entitled or were denominated as entitled to
indemnification hereunder and shall inure to the benefit of the heirs and legal
representatives of persons entitled to indemnification hereunder and (4) shall
be applicable to Actions commenced after the adoption hereof, whether arising
from acts or omissions occurring before or after the adoption hereof. The right
of indemnification provided for herein may not be amended, modified or repealed
so as to limit in any way the indemnification provided for herein with respect
to any acts or omissions occurring prior to the effective date of any such
amendment, modification or repeal.
8
<PAGE>
Exhibit 11
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Statement - computation of per share earnings
Statement of Computations of Earnings per Share
<TABLE>
<CAPTION>
For the Three Months
Ended Mar. 31
------------------------
<S> <C> <C>
1998 1997
----------- -----------
Net Earnings $ 4,251,000 $ 3,195,000
=========== ===========
Weighted average common
shares outstanding 15,005,000 15,040,000
=========== ===========
Earnings per share of common stock $ .28 $ .21
=========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1998 QUARTERLY REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 33,428
<SECURITIES> 0
<RECEIVABLES> 9,146
<ALLOWANCES> 0
<INVENTORY> 3,455
<CURRENT-ASSETS> 46,784
<PP&E> 142,687
<DEPRECIATION> 71,432
<TOTAL-ASSETS> 128,990
<CURRENT-LIABILITIES> 19,096
<BONDS> 26,830
<COMMON> 2,350
0
0
<OTHER-SE> 67,457
<TOTAL-LIABILITY-AND-EQUITY> 128,990
<SALES> 560
<TOTAL-REVENUES> 16,096
<CGS> 537
<TOTAL-COSTS> 10,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 462
<INCOME-PRETAX> 6,515
<INCOME-TAX> 2,264
<INCOME-CONTINUING> 4,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,251
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
